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Craig Hockenberry, whose Twitterific and Frenzix apps have both done well on the store, is concerned that the abundance of free and 59p applications means that it is more difficult, if not impossible for higher-priced software to appear in the crucial best selling lists. That makes it more difficult to sell that software and consequently to recoup the investment.

“Before commencing any new iPhone development, we look at the numbers and evaluate the risk of recouping our investment on a new project,” he says in an open letter to Apple chief executive Steve Jobs. “Both developers and designers cost somewhere between $150-200 per hour. For a three man month project, let’s say that’s about $80K in development costs. To break even, we have to sell over 115K units. Not impossible with a good concept and few of weeks of prominent placement in iTunes.”

But what happens, he asks, when developing an apps takes much longer than three months? That could cost up to $225,000, requiring sales

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of as many as 320,000 units.

“Raising your price to help cover these costs makes it hard to get to the top of the charts. (You’re competing against a lot of other titles in the lower price tier.) You also have to come to terms with the fact that you’re only going to be featured for a short time, so you have to make the bulk of your revenue during this period.”

The risk, he says, is too great.

“This is why we’re going for simple and cheap instead of complex and expensive. Not our preferred choice, but the one that’s fiscally responsible.”

And it’s not just developers who will suffer he says. A “killer app” for the iPhone could get lost amid pages and pages of 59p/99¢ “crapware”.

“I also worry that this low price point for applications is going to limit innovation on the platform. … when are we going to see the utility of the platform taken to another level, like when spreadsheets appeared on the Apple ][ and desktop publishing appeared on the Mac?,” he asks. “It would be great if the killer app for the iPhone cost 99¢, but given the numbers above I can’t see it being very likely.”

Daring Fireball blogger John Gruber has one possible solution for Hockenberry’s dilemma—ranking apps relative to their price.

“What Apple could do is weight the best-seller list by revenue rather than unit sales,” he says. “That way a $10 app with 1,000 sales could get ahead of a $1 app that sells 5,000.”